March 1, 2024

Revenue Rises at Google but Profit Misses Forecasts, and Analysts Point to Spending

Not that Mr. Page felt the need to explain. He stayed only a few minutes on a conference call with the analysts and left before taking their questions.

“Maybe he doesn’t want to do it every quarter, but there was nothing meaningful,” said Colin Gillis, an analyst with BGC Financial.

The company reported that first-quarter revenue increased 27 percent. While profits were also up, they fell short of analysts’ predictions. “We’ve had a tremendous quarter,” Mr. Page said before leaving. He said that “it shows the strength of our business and the continuing growth in the tech industry.”

Google’s shares fell 5.5 percent to $546.96 in after-hours trading. The share price was flat during regular trading Thursday.

In the analysts’ eyes, Google’s spending played a big role in the stumble on Thursday. The company had gone on a hiring spree — it added nearly 1,900 new workers during the quarter — and made good on a previous promise to give all its employees a 10 percent raise. Operating costs including salaries were $2.84 billion in the first quarter, up 55 percent from a year earlier.

Asked repeatedly about the spending in a call with analysts, the Google executives who did stick around stressed that the hiring was necessary to help build emerging products like mobile and YouTube that will pay off in the long run. Patrick Pichette, Google’s chief financial officer, emphasized that Google was disciplined and that all units had to justify their costs.

“Everybody that has a cost center has to demonstrate productivity,” he said.

That response got a cool reception from analysts. “They can’t continue to invest at this rate because the law of diminishing returns will kick in at some point,” said Ross Sandler, an analyst with RBS Capital Markets.

The big question before the call was whether Mr. Page would speak. He is not particularly talkative and, previously, while co-president, often missed such meetings with the analysts. Mr. Pichette described Mr. Page’s appearance as “a surprise,” signaling that he will likely be an infrequent participant in the future.

Mr. Gillis, BGC Financial analyst, said that Mr. Page should have made more of an effort. “The reality of running a public company is that that are some of obligations of outreach to the financial community and shareholders,” Mr. Gillis said. “The concern is that he is going to run the company without concern for shareholders and there was nothing here to placate that.”

Mr. Page led Google after co-founding the company in 1998 with Sergey Brin, but then gave up the reins three years later to Eric E. Schmidt, a more experienced technology executive who was hired to balance the offbeat founders who stayed very involved in decision making.

Under Mr. Schmidt, Google, based in Mountain View, Calif., thrived. But with the growth came increasingly slow decision making and a feeling inside the company that other companies, notably Facebook, were perhaps innovating more quickly.

Mr. Page is determined to push back the bureaucracy. During his short tenure, he has already reorganized top management to increase “velocity,” as he put it on Thursday, and revamped the employee bonus program to reward workers for the company’s success with social networking products.

Google executives are concerned about the rise of Facebook. Executives promised more social features from Google, particularly using cues from its users’ behavior to personalize their results.

Google’s first-quarter earnings are the first reported with Mr. Page at the helm. However, they reflect the company’s performance for the first three months of the year, when Mr. Schmidt, was still in charge. Mr. Schmidt is now the company’s chairman.

Google reported that net income in the quarter rose 17 percent to $2.3 billion, or $7.04 cents a share, from $1.96 billion, or $6.06 a share in the year-ago quarter. The company said revenue climbed to $8.58 billion from $6.77 billion.

Google’s adjusted income of $8.08 was just below the expectations of Wall Street analysts. They had forecast $8.11 cents a share on that basis, according to a survey by Thomson Reuters.

Revenue excluding payments to partner Web sites, a measure commonly used by analysts following the company, was $6.54 billion, Google said. Analysts had expected $6.32 billion in revenue on that basis.

Paid clicks, the number of times users clicked on ads on Google and those of its partner sites, increased 18 percent in the first quarter from the same period a year earlier, Google said. The price advertisers paid for Google’s ads grew 8 percent.

Online advertising is by far Google’s biggest business, but the company is pushing into advertising on mobile phones where people are spending an increasing amount of time.

Google said on Thursday that 350,000 mobile devices using its Android operating system were activated daily. Android led all other mobile operating systems with 33 percent of the phone market in the United States for the three months ending in February, according to comScore’s MobiLens report. Research In Motion, maker of the BlackBerry, had a 28.9 percent share, while Apple’s share was 25.2 percent.

Mr. Pichette indicated that Google would remain a technology company looking for new users and “billion dollar businesses.”

The company’s position has not changed,” Mr. Pichette said.

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